City thinking, local knowledge

Managing Family Finances: Navigating Soaring Credit Card APRs

By Questa Chartered

At Questa, our focus is building wealth and creating a prosperous future for our clients. We understand that managing family finances can be challenging, especially when faced with soaring credit card APRs. 


The recent base rate rise in the UK has triggered increased borrowing costs, affecting households across the country. In this article, we aim to provide pragmatic guidance for families with savings and investments, helping you navigate these changes effectively. 


By implementing short, medium, and long-term solutions, you can take control of your financial situation and alleviate the impact of rising credit card APRs.


In this article, we’ll look at:


  • The recent base rate rise in the UK has increased credit card APRs, impacting family finances.
  • Understand the relationship between base and credit card rates to manage the impact effectively.
  • Short-term solutions include reviewing credit card terms, utilising balance transfer cards, and practising prudent credit card usage.
  • Medium-term solutions involve evaluating personal loan options and negotiating with credit card providers.
  • Long-term strategies include prioritising debt repayment, building an emergency fund, and diversifying investments.
  • Seek professional guidance to tailor these solutions to your specific situation.
  • Take control of your finances, minimise borrowing costs, and secure a stable financial future for your family.


Understanding the Impact


The relationship between base rate rise and credit card rates can be complex. When the Bank of England increases the base rate, credit card providers often follow suit by raising interest rates on existing cards. 


This means that your credit card APR can fluctuate, affecting the cost of borrowing. The average credit card debt per household is £2,315, and even a 0.5% increase in the base rate can add approximately £11.58 to your annual borrowing costs.


Short-Term Solutions:


In the short term, there are steps you can take to manage the impact of soaring credit card APRs:


  • Reviewing credit card terms and conditions

Understanding your credit card provider’s policies regarding interest rate changes is essential. Take the time to read any letters or notifications informing you of upcoming rate increases. By staying informed, you can anticipate changes and plan accordingly.


  • Utilising balance transfer credit cards 

Consider transferring your existing credit card balances to a balance transfer credit card with a 0% introductory offer. This allows you to consolidate your debts and potentially avoid paying interest for a specific period. However, be mindful of any fees associated with the balance transfer and ensure you can pay off the debt within the promotional period.


  • Implementing prudent credit card usage 

Responsible spending habits can significantly impact your financial well-being. Avoid unnecessary debt by using your credit cards wisely. Make it a habit to pay off your credit card balances in full each month, ensuring you only spend what you can afford. This practice reduces interest charges and helps maintain a healthy credit score.


Medium-Term Solutions


To address the impact of rising credit card APRs in the medium term, consider the following strategies:


  • Evaluating personal loan options 

If you have outstanding personal loans, research the current market for competitive rates and loan terms. Refinancing existing loans can provide an opportunity to secure lower interest rates, reducing your overall borrowing costs. Consult with financial institutions or use online comparison tools to find the most favourable terms for your circumstances.


  • Negotiating with credit card providers: 

Speak to your credit card companies to discuss rate reductions or alternative arrangements. Explain your situation and ask if they can offer any adjustments to make your debt more manageable. Remember, credit card providers want to retain their customers and may be willing to negotiate terms to accommodate your needs.


Long-Term Solutions:


To establish financial stability and mitigate the impact of soaring credit card APRs in the long term, consider the following strategies. (Long-term strategies are where financial advisers like Questa excel in creating a worry-free financial future for you and your family.)


  • Prioritising debt repayment 

Developing a comprehensive debt repayment plan is crucial for long-term financial health. Identify high-interest debts and allocate excess funds towards paying them off first. This approach minimises the amount of interest you accrue over time, accelerating your journey towards becoming debt-free. 

  • Building an emergency fund 

An emergency fund acts as a safety net, protecting you from unexpected expenses or income disruptions. Start by setting aside a portion of your income each month to build an emergency fund. Having readily available savings can reduce the need to rely on credit cards during times of financial strain.


  • Diversifying investments 

While focusing on managing debt, it is equally important to consider long-term wealth building. Diversifying your investments allows you to maximise returns and potentially offset any financial burdens. Consult with financial advisors to ensure your investments align with your risk tolerance and long-term goals.


Free Debt Advice


Here are five free websites that offer debt advice for UK residents:


  1. National Debtline: Offers phone and web chat services in England and Wales. Telephone: 0808 808 4000.
  2. Citizens Advice: Offers phone and webchat services. They also have advice centres in England, Wales, and Scotland. 
  3. PayPlan: Offers phone and webchat services. Telephone: 0800 280 2816 
  4. Debt Advice Foundation: Provides free debt advice and support through its helpline (0800 043 40 50) 
  5. MoneyHelper: Provides a debt advice locator tool that offers free, confidential help and debt advice services across the UK


Other free debt advice websites include Debt Support Trust, StepChange Debt Charity, and Shelter Debt Management.

Your Next Steps


Navigating soaring credit card APRs can be a challenge. Still, by implementing these short, medium, and long-term solutions, families with savings and investments can take control of their financial well-being. 


Stay informed about interest rate changes, utilise balance transfer credit cards wisely, and develop responsible spending habits. Additionally, evaluate personal loan options, negotiate with credit card providers, prioritise debt repayment, build an emergency fund, and consider diversifying investments. 


By taking proactive steps and seeking professional guidance when needed, you can safeguard your family’s financial future and mitigate the impact of rising credit card APRs. Remember, you have the power to regain control over your finances and thrive even in the face of challenging economic circumstances.


Questa would love to talk to you if you want to take control of your finances and face these challenges head-on. It’s our job to equip you to protect your disposable income and maintain financial stability; no matter what the shifting tides of the economy may bring. 


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